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This Sector Will Lead a Year-End Rally

By Jeff Clark
Tuesday, October 30, 2012

It has been a bad week for Wall Street.
 
The S&P 500 lost 1.5% last week. Bank stocks fell almost 2.5%. Precious metals were down anywhere from 0.2% to 4.4%. Crude oil dropped 5%.
 
And as if all that wasn't enough, the market shut down yesterday so traders could board up their windows in anticipation of Hurricane Sandy.
 
Ironically, lumber prices popped 3% higher last week.
 
Another sector showing strong relative strength was the semiconductor group. The chip sector bucked the downtrend and was up 0.7% for the week. This is great news for anyone hoping for a year-end rally in stock prices.
 
Take a look at this chart of the Market Vectors Semiconductor Fund (NYSE: SMH)...
 
 Semiconductor Fund SMH in a Consolidating Triangle Pattern
 
This chart illustrates a six-month-long consolidating-triangle pattern. The chip sector is storing up energy for a big move one way or the other. When the chart breaks out of the pattern, it could lead to a move of as much as 20% or so.
 
The chip sector's ability to move higher last week while almost everything else was selling off is a good sign for the bulls. A better sign will be for SMH to break above the down-trending resistance line with a move above $32.50.
 
So keep an eye on this chart. As the S&P 500 approaches the 1,390 target I shared with you last week, traders should watch leading sectors like the semiconductor group for signs of strength. It'll provide an early clue that a year-end rally is ready to unfold.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

As Jeff showed readers last week, he expects we're in for a period of lower stock prices before the market rallies to year-end highs. See the chart that proves it here: A New Downside Target for Stocks.

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Market Notes
Top-performing equity fund of the past two years: iShares Homebuilder Fund (ITB), up 78%.
 
Worst-performing equity fund of the past two years: PowerShares Clean Energy Fund (PBW), down 59%.
 
Expect rising food prices… wheat, soybeans, and oats are all up 25%-plus so far in 2012.
 
Bad news for bond investors… bond yields have been steadily rising since bottoming in July.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1411.94 +0.0% +9.9%
Oil (USO) 31.79 +0.0% -9.3%
Gold (GLD) 165.93 -0.1% -0.9%
Silver (SLV) 31.08 -0.1% -4.4%
U.S. Dollar 80.25 +0.3% +7.1%
Euro 1.29 -0.3% -8.9%
Volatility (^VIX) 17.81 +0.0% -27.4%
Gold Stocks (^HUI) 491.33 +0.0% -15.7%
10-Year Yield 1.75 +0.0% -24.2%

World ETFs
Symbol Price
Change
52-Wk
Singapore (EWS) 13.38 -0.4% +16.5%
USA (SPY) 141.35 -0.1% +16.2%
S. Africa (EZA) 65.33 +0.9% +7.4%
S. Korea (EWY) 57.37 -0.9% +5.8%
China (FXI) 36.93 -1.6% +5.0%
Canada (EWC) 28.19 -0.4% +3.5%
Taiwan (EWT) 12.61 -1.0% +1.6%
Lat.America (ILF) 42.71 -0.2% -0.3%
Japan (EWJ) 9.12 -0.6% -2.6%
Israel (ISL) 13.13 +0.1% -4.1%
India (IFN) 22.84 -0.1% -7.7%
Russia (TRF) 14.77 -1.0% -9.0%

Sector ETFs
Symbol Price
Change
52-Wk
Construction (PKB) 16.12 -0.8% +40.6%
Health Care (IYH) 84.19 -0.6% +24.8%
Media (PBS) 16.33 -0.2% +23.5%
Consumer Svcs (IYC) 85.29 +0.3% +22.8%
Financials (IYF) 58.82 -0.6% +21.7%
Retail (PMR) 25.06 +0.3% +18.8%
Insurance (PIC) 17.31 -1.7% +18.7%
Telecom (IYZ) 24.44 +0.5% +18.5%
Real Estate (IYR) 63.29 -0.6% +18.3%
Big Tech (QQQQ) 65.35 +0.3% +15.3%
Industrials (IYJ) 70.08 +0.1% +15.1%
Water (PHO) 19.24 -0.1% +14.5%
Defense (PPA) 19.97 +0.3% +13.6%
Biotech (PBE) 22.52 -1.3% +12.7%
Software (PSJ) 26.93 +0.2% +9.8%
Utilities (XLU) 36.58 +0.0% +9.4%
Transportation (IYT) 89.33 +0.2% +4.9%
Basic Mat (IYM) 67.21 +0.4% +4.5%
Oil Service (OIH) 38.88 -0.7% +0.0%
Big Pharma (PPH) 41.08 -0.3% +0.0%
Nanotech (PXN) 5.79 -0.7% -4.7%
Semis (PSI) 13.44 +0.2% -5.6%
Alt. Energy (PBW) 3.90 -0.5% -29.5%